The Secret of Making an Investment Methodology Produce Consistent Profits

“I have heard many men talk intelligently, even brilliantly, about something – only to see them proven powerless when it comes to acting on what they believe. Investors must act in time.” -- Bernard Baruch

There is a fine line between embracing your methodology, trading it, trusting it, understanding all its nuances, strengths and weaknesses versus never truly trusting your methodology. Suspecting that your methodology is flawed and therefore constantly tinkering with it and needing to reinvent it will not lead to success.

This is when looking in the mirror and asking some personally pointed questions is required. Do you have some deep-seated need to constantly tinker? Are you a pessimistic soul at heart who believes your methodology is fundamentally flawed? Is it possible that you seek some unattainable perfection and therefore pursue new indicators and inputs just because you believe one more will make it possible to achieve that perfection?

After more than 25 years of trading, I’ve managed to simplify and trust my methodology enough to achieve an equilibrium that’s consistent and profitable. There are two corollaries. One, if it isn’t broken, I don’t try to fix it. Two, perfection doesn’t exist nor is it attainable. Small losses are part of one’s stock market tuition.

The human tendency is to keep tinkering because it gives investors a false sense of accomplishment. Most people refuse to embrace the fact that investing is, for example, the opposite of golf. Course designers build bunkers and hazards to make golf interesting. A flat course would be tame, monotonous and boring.

In contrast, investing at the very highest levels is in fact boring. Your methodology should have removed all the sand traps and water hazards. Your objective over the years should be to tame the behavioral bunkers and to embrace your “boring” methodology.

Don’t confuse a good methodology with a profitable methodology. I can share with you a detailed description of my methodology which is both good and profitable for me because I built it and I use it judiciously each day. I trust it to provide me sound judgments which will produce consistent profits as long as I follow it. It is not dissimilar to an athlete who knows which daily exercise routines will increase his or her muscles. I know that judiciously exercising my methodology each day will increase my trust and intimate understanding about all aspects and nuances of it. Both this trust and understanding facilitate my implementation of my methodology.

This is why you can’t simply hand another investor your “good” methodology. They must take the time to experience it as I have done. Over time, they will come to trust it and make it their own so that eventually they, too, will produce consistent profitable judgements. There are no short cuts.

About the author:Gatis Roze, MBA, CMT, is a veteran full-time stock market investor who has traded his own account since 1989 unburdened by the distraction of clients. He holds an MBA from the Stanford Graduate School of Business, is a past president of the Technical Securities Analysts Association (TSAA), and is a Chartered Market Technician (CMT). After several successful entrepreneurial business ventures, Gatis retired in his early 40s to focus on investing in the financial markets. With consistent success as a stock market trader, he began teaching investments at the post-college level in 2000 and continues to do so today.
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